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Five myths about fixed-term employees

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Fixed-term employees provide cheap temporary cover, with little risk to the employer when the contract expires. That is a commonly-held view. However, is it true? Here we focus on five key rights that fixed-term employees can claim.

Since 2002 and the introduction of the Fixed Term Employees (Prevention of less favourable treatment) Regulations, fixed-term employees have to be hired on no less favourable terms than permanent colleagues doing the same or similar work and, in addition, are protected against any detrimental treatment on the grounds of their fixed-term status. Consequently, the general rule is that fixed-term employees should be provided with the same benefits, including holidays, sick pay, pensions etc. as any permanent employees. The only exception is where the difference in treatment can be objectively justified – for example, if the overall package offered to the fixed-term employee is at least equal to the total value of the package provided to the comparable permanent employee. The employer might do this by offering a better rate of pay to the fixed-term employee to compensate them for the loss of a benefit offered to permanent member of staff.

An employee who has been employed on a succession of fixed-term contracts for four years or more will automatically be deemed a permanent employee, unless the employer can objectively justify the continued use of a fixed-term contract. This rule only applies where the employee has worked under two or more successive fixed-term contracts, with no break in service – for example, four one-year contracts. If an employee has been employed under one long fixed-term contract without it being renewed – say a five-year contract – that employee will not be deemed to be permanent, as the contract has never been renewed.

The non-renewal of a fixed-term contract does actually constitute a dismissal in law and, therefore, a fixed-term employee may be able to claim unfair dismissal if they have the requisite length of service – which is one year’s service, or two years, if their employment commenced on or after 6 April 2012. They may have a good claim for unfair dismissal if the employer fails to renew the contract, without having one of the statutory fair reasons for dismissal and without following a fair procedure. Consequently, if an employer is planning not to renew a fixed-term contract, they should have it clear in their minds whether one of the potentially fair reasons for dismissal exists and plan to take the employee through a fair process, prior to the expiry of the contract.

Even if it is a dismissal, people often think that the non-renewal of a fixed-term contract will always be fair for some other substantial reason (“SOSR”). However, if there is no longer a requirement for an employee to carry out the type of work they were hired to do, it’s just as likely – if there is a fair reason – to be regarded as a redundancy dismissal. In which case, the employee will be entitled to a redundancy payment in exactly the same way as a permanent employee, provided that they have two years’ continuous service.

In a redundancy situation, many employers will automatically dismiss fixed-term employees before permanent employees. However, this would give fixed-term employees the right to bring a claim that they have been dismissed purely on the basis of their temporary status. Unless such treatment could be justified, the employer could face claims of unlawful detriment or unfair dismissal.

As you can see, fixed-term employees have a number of legal rights in relation to pay and security of employment. Before recruiting, employers should consider the reasons why the employee is being hired for a fixed-term only and ensure that any differences in terms can be justified.